Does applying for a credit card hurt your credit? It’s an important question to consider before shopping for a new credit card. A credit card should suit your spending habits and financial goals, so choosing the right one is important.
Although applying for a new credit card may temporarily lower your credit score, using it responsibly can actually improve it. So, you should take a few factors into consideration before submitting your application.
Here’s what you need to consider before applying for a new credit card—and some of the benefits you may experience with your new card.
How applying for a credit card can hurt your credit score
Applying for a new credit card can trigger a hard inquiry, meaning the lender will look at your credit reports.
The hard inquiry will typically stay on your records for two years but only count towards scoring for up to 12 months. This may lead to a slight drop in your credit scores, according to FICO®.
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How applying for a credit card can help your score
You may experience a dip in your credit score upon getting approved for a new credit card, but having a new one carries several benefits.
Increase Credit Utilization
Your available credit increases, which can help improve your credit utilization ratio. This ratio is calculated based on the total available credit you’re using. Experts recommend keeping it below 30%. To maintain a low utilization ratio, keep track of your balance and avoid charging large purchases.
Improve Credit Mix
Getting approved for a new credit card could improve your credit mix. Credit mix is your different types of accounts, such as car loans, mortgages, and credit cards. Credit card issuers like to see that borrowers can responsibly manage these different types of debt.
A healthy credit mix demonstrates financial diversity and stability, which are good markers for lenders.
Benefits of Opening a New Credit Card
Whether you’re looking to consolidate debt, save for a major purchase or build up an emergency fund, your new card could be just the tool to get you there.
Here are a few additional benefits to opening a new credit card:
- Earn rewards – Many credit cards offer rewards programs that allow you to earn points or cash back on your purchases. If you use your credit card for everyday purchases, you can quickly rack up many rewards. The rewards can often be for travel, gift cards, or statement credits.
- 0% APR – Many credit cards offer 0% APR periods on new purchases or balance transfers, which can be helpful if you are trying to pay off a large purchase or transfer a balance from another card with a high-interest rate.
- Build up your emergency fund – You can use your credit card to build up your emergency fund if you charge only what you can afford to pay off each month. If you have an unexpected expense, you won’t have to put it on a high-interest credit card or take out a loan.
Read More: Tips for Building an Emergency Fund
How to improve your chances of credit card approval
Improving your credit score is a great way of increasing the likelihood that you’ll be approved for a credit card. Boost your creditworthiness and improve your chances of being approved for a credit card with these tips:
- Check your credit report regularly. By checking your report, you can catch errors and correct them before they have a chance to impact your score. You can also keep an eye on your account balances and ensure you are not using too much of your available credit.
- Make your payments on time. Payment history is one of the most important factors in determining your credit score. If you need help remembering to make your payments on time, you can set up automatic payments through your bank or credit card company.
- Use a mix of different types of credit. Lenders like to see borrowers who can handle different types of credit responsibly. Therefore, using a mix of different types of credit can help boost your creditworthiness. Some examples of different types of credit include revolving credit (credit cards) and installment loans (personal loans).
- Have a history of responsible credit use. If you have been using credit responsibly for a long period of time, it will likely boost your chances of being approved for new lines of credit in the future.
What to consider before applying for a New Credit Card
Understanding which credit card is right for you and your financial goals is important when applying for a new card. Be mindful that opening a new credit card could result in a hard inquiry on your credit report, which could briefly dip your score.
However, using your credit card wisely and responsibly could help increase your overall credit score by building up your payment history, improving your credit mix, and increasing your available credit line.
My USA Finance can help you compare different credit cards and monitor your credit score easily all in one place.
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FAQ's - Does Applying for a Credit Card Hurt Your Credit?
Yes, applying for a credit card can have a minor negative impact on your credit score. When you submit a credit card application, the credit card issuer typically performs a hard inquiry on your credit report.
This hard inquiry may lead to a slight dip in your credit score.
However, this impact is usually temporary and tends to recover within a few months as long as you continue to manage your credit responsibly.
A credit card application’s impact on your credit score typically lasts for about two years. However, it only significantly affects your credit score for the first 12 months. After that, its influence diminishes. It’s essential to note that responsible credit card use can counterbalance any initial dip in your credit score.
Yes, applying for multiple credit cards within a short period can potentially have a more pronounced negative effect on your credit score. Each credit card application triggers a hard inquiry, and multiple hard inquiries in a short timeframe can signal to lenders that you might be taking on too much debt.
It’s advisable to be selective and apply for credit cards that align with your financial needs to minimize this impact.
Yes, you can check your credit card eligibility without negatively affecting your credit score by using pre-qualification tools offered by many credit card issuers. These tools perform a soft inquiry, which does not impact your credit score.
They provide an estimate of whether you’re likely to be approved for a specific credit card based on your credit profile.
To minimize the potential negative impact on your credit when applying for a new credit card, consider the following steps:
- Be selective and apply for cards that align with your financial needs.
- Space out your credit card applications to avoid multiple hard inquiries in a short timeframe.
- Regularly monitor your credit report to ensure accuracy and detect any unauthorized inquiries.
- Maintain a healthy credit utilization ratio by keeping your credit card balances low.
- Make timely payments on all your credit accounts to maintain a positive payment history.
By following these guidelines, you can apply for credit cards strategically and minimize the impact on your credit score while building a positive credit history over time.
